OCHI Biofarma PDF

THE INDONESIAN JOURNAL OF
BUSINESS ADMINISTRATION
Vol. 2, No. 13, 2013:1570-1579

FORMULATING COMPANY HEALTH ASPIRATION
TO ACHIEVE ORGANIZATIONAL EXCELLENCE BY USING ORGANIZATIONAL
HEALTH INDEX (OHI) : CASE STUDY AT PT BIO FARMA (PERSERO)

Vonny Franciska and John Welly
School of Business and Management
Institut Teknologi Bandung, Indonesia
vonny.franciska@sbm‐itb.ac.id

Abstract – McKinsey Company found that if an organization want to sustain for a long term, it needs to keeps
not only their performance but also its health. As the company that has been sustained for more over 122 years,
PT. Bio Farma needs not only sustain but also excellence to achieve their vision to become a global company.
PT. Bio Farma needs to knows and then maintains their organizational health in order to keep having high
performance for a long term. By using Organizational Health Index (OHI) that has been formulized by McKinsey,
PT. Bio Farma could find out their organizational health level and then take some action related to the result.
Business recommendation developed as action taken will help PT. Bio Farma to keep having high performance.
Organizational Health Index (OHI) contains nine elements that consist of direction, leadership, culture and
climates, accountability, coordination and control, capabilities, motivation, external orientation, innovation and
learning. There are 37 organizational health practices under the nine elements that measure organizational
effectiveness. This research found that PT. Bio Farma has surpassed the requirement of healthy organization but
not excellence yet. The company needs to apply some management practices to become its health aspiration.
From the analysis, PT. Bio Farma health aspiration recommended is leadership driven. By focus and done well in
leadership driven archetype model, PT. Bio Farma is believed can become a sustainable excellence organization.

Keywords: Organizational Health Index (OHI), health aspiration, sustainable excellence organization, McKinsey.

1. Introduction
PT. Bio Farma (Persero) is a state‐owned enterprise which is owned 100% by Indonesian
Government. PT. Bio Farma is the only vaccine producer in Indonesia and as the biggest in Southeast
Asia. Its position as the only manufacturer of vaccine and anti sera in Indonesia does not make Bio
Farma complacency. To face the global competition, PT. Bio Farma keeps to adaptable and innovates
in various ways. By producing new products with biotechnology‐base to meet the market needs, PT.
Bio Farma believes it becomes the key success in the future. Being one of 30 companies that has
prequalification from World Health Organization (WHO) from total 200 vaccine producer companies
of the world made PT. Bio Farma shows its existence. As stated by the board of directors at annual
report 2011, the prospect of vaccine industry is still promising, however PT. Bio Farma should aware
to global competition by doing several refinements in organization. They also stated that one of the
main focus aspects in management to support company performance improvement is Human
Resources.

A. Core Business
PT. Bio Farma core business is to produces vaccine and anti sera that are classified in five
categories, vaccine, anti sera and diagnostic, which are viral vaccine, bacterial vaccine, combination
vaccine, anti sera and diagnostic. The distribution of its products cover the national needs and has
entered international market. In recent time, PT. Bio Farma has 12 distributors for domestic market
and five international agents for global market.
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Fransciska and Welly / The Indonesian Journal of Business Administration, Vol.2, No.13, 2013:1570‐1579
Refer to some researchers and evidences by McKinsey Company, there is finding that if an
organization want to sustain for a long term, it needs to keeps not only their performance but also
health. Scott Keller and Collin Price, senior executives of McKinsey Company, stated in their book,
Beyond Performance that for companies to achieve sustainable excellence they must be healthy; this
means they must actively manage both their performance and their health (2011:5).

B. Business Issue
Some may know that in Indonesia, Minister of State‐owned Enterprise has regulated how to measure
the healthy level of State‐owned Enterprise. Based on Decision Minister of State‐owned Enterprise,
PT. Bio Farma (Persero) got score 94 which means “Health AA” for year 2012, a little bit lower than
the previous year, the company got score 95,1 that means “Health AAA”. The health level criteria are
assessed in three aspects, financial, operational and administration. Unfortunately this three aspects
only measure the performance level of the company.

As the company that has been sustained for more over 122 years, PT. Bio Farma needs not only
sustain but also excellence to achieve their vision to become global company. Author has interviewed
and discussed to Head division of Human Resources related to this issue that PT. Bio Farma needs to
knows and then maintains their organizational health in order to keep having high performance for a
long term. The lower score of State‐owned Enterprise Minister’s assessment in 2012 might because
PT. Bio Farma has not concerned yet to their organizational health. By using Organizational Health
Index (OHI) that has been formulized by McKinsey Company, PT. Bio Farma could find out their
organizational health level and then takes some action related to the result. Business
recommendation developed as action taken will help PT. Bio Farma to keep having high performance
(AAA) in order to become a sustainable excellence company in the future.

2. Business Issue Exploration
In this part, authorattempts to find out factors so assumed to be the root of business issue. Such
factors form conceptual framework of his/her final project. By analyzing factors found in such
conceptual framework, the student could identify one or several significant factors affecting the
business issues. Description concerning conceptual framework and analysis is described as follows.
C. Conceptual Framework
This research started from nine element of Organizational Health Index (OHI) that has been
developed by McKinsey Company to measure the healthiness of organizations. There are 37
organizational health practices under the nine elements that measure organizational effectiveness.
Organizational effectiveness is measured from the process of 37 organizational health practices in
this model. There are two outcomes of organizational effectiveness, those are healthy and unhealthy
organization. The organization needs to be healthy first to have a change for being sustainable
excellence organization. Once the organization measured healthy, then it needs to choose and apply
the archetype driven of the company. The archetype drive is the formula to help companies to
become sustainable excellence organizations.

D. Method of Data Collection and Analysis
Author uses mixed method research that is combined the quantitative and qualitative research.
Quantitative research
The quantitative research is conducted by process the quantitative data from questionnaires.
The validated data is analyzed to find the existing OHI result of PT. Bio Farma. This existing
result then compared with the archetypes model to be chosen.
Qualitative research
The qualitative research is conducted by doing gap analyzing of current OHI result of PT. Bio
Farma with the archetype chosen. The gap analysis is used to formulate the solution that
would be validated by expert judgement in PT. Bio Farma.

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The primary data that is used in this research were obtained directly by the author through
questionnaires distribution and interview and discussion with senior managers and managers in PT.
Bio Farma. The questionnaire is developed by interpreting from the definition of organizational
health that is consists of nine elements and 37 organizational practices. The nine element of OHI and
37 practices as follows:

Table 1. Organizational Health Index

Elements Practices
1. Direction 1. Shared vision
2. Strategic clarity
3. Employee involvement
2. Leadership 4. Authoritative leadership
5. Consultative leadership
6. Supportive leadership
7. Challenging leadership
8. Open and trusting
3. Culture and
9. Internally competitive
climates
10. Operationally

disciplined

11. Creative and

entrepreneurial
12. Role clarity
4. Accountability
13. Performance contracts

14. Consequence

management

15. Personal ownership
16. People performance
5. Coordination and
review
control
17. Operational

management

18. Financial management

19. Professional standards

20. Risk management
21. Talent acquisition
6. Capabilities
22. Talent development

23. Process‐based

capabilities

24. Outsourced expertise
25. Meaningful values
7. Motivation
26. Inspirational leaders

27. Career opportunities

28. Financial incentives

29. Rewards and

recognition
8. External 30. Customer focus
orientation 31. Competitive insight
32. Business partnership
33. Government and
community relations
9. Innovation & 34. Top‐down innovation
Learning 35. Bottom‐up innovation
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36. Knowledge sharing
37. Capturing external
ideas
The questionnaire was developed into two types of instruments based on OHI model as describes
above. The first type is about health outcomes which ask about respondents extent to which they
agree. This questionnaire consist of nine elements of OHI which has five possible response as follows:

Table 2. Health Outcomes Scale

Likert Scale Possible Answer
1 Strongly disagree
2 Disagree
3 Neutral
4 Agree
5 Strongly agree

The second type is about organizational health practices that are consist of 37 practices which
areasks the respondents how often the practices are demonstrated at their organization.
Respondents are asked the extent to which it is true of their organization where there are 5 possible
responses as follows:

Table 3. Organizational Practice Scale

Likert Possible Answer
Scale
1 Never
2 Seldom
3 Sometimes
4 Often
5 Always

The questionnaire is represented into 48 items that accommodate both health outcomes (9 items)
and organizational health practices (39 items). The organizational health practices have 37 variables
that interpreted into 39 statements in the questionnaire. There are 36 variables represented 36
statements and there is one variable – people performance review – that represented three
statements. People performance review represented into three statements due to its description
could not be represented in single statements. Characteristic of the respondents are the permanent
employees who have a strategic position in the company such as, Division Head, Department Head,
Section Head, Staff and Young Staff. PT. Bio Farma has five directorates that consist of 24 divisions
where there are 489 people that meet that respondents’ characteristic. As much as 115
questionnaire copies of respondents valid to be analysis. The respondents participated are showed as
follows:
1. Division Head (9) 5. Young Expert (5)
2. Department Head (17) 6. Young Staff (16)
3. Section Head (31) 7. Staff (26)
4. Medium Expert (8)

E. Analysis of Business Situation
Keller and Price explained in their book that when an organization sets aspirations for its health that
are as clear and explicit as those for its performance, it significantly increases its chance of achieving
a successful transformation (2011:58). McKinsey research indicates that organizations need to
achieve a threshold level of health across all nine elements of organizational health. Specifically, the
organizations need to be above the bottom quartile on each of the 37 practices that drive the
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outcomes on these elements. In the other words, an organization must be above the threshold level
of health on all 37 of the management practices defined in the survey. The threshold level of the
bottom quartile is 1,25. The research has shown that organizations do not need to excel in every
aspect of health. They found that a company that is in the top quartile for six or more practice has
80% likelihood of being in the top quartile for overall health, which in turn drives superior business
performance. So the health minimum standard is above the bottom quartile on all practices, but they
need to have six practices at the top quartile to achieve excellent organizational health.

There are four recipes that can be used as foundation to build the excellent organizational health.
The recipes are labeled as “archetype”. The four archetypes are leadership driven, execution edge,
market focus, and knowledge core.
After filtering the top quartile, then it needs to be sorted from the biggest mean value to the smallest
to find out what is the strength priority practices of PT. Bio Farma (Persero).There are 13 top
practices that are spread in 3 different archetypes as follow:
1. Leadership driven, there are 5 practices fit and has the highest score, 193.The practices are:
Open and trusting, Performance contract, Operationally diciplined, Operational management
and Consultative leadership.
2. Knowledge core, there are 3 practices fit and has score102.The practices are: Role clarity,
Performance contract, Professional standard
3. Execution edge, there are 3 practices fit and has the lowest score, 73. The practices are:
Creative and entrepreneurial. Talent development. Top‐down innovation.
a. Health Aspiration
The questionnaire result found that all of 37 items practices of PT. Bio Farma are above the bottom
quartile (1,25) and there are 13 items are laying on the top quartile (above 3,75). It is mean that PT.
Bio Farma has met the requirement condition of health.
Leadership driven reached the highest score and become as the dominant archetype in PT. Bio
Farma which mean the company strength. Keller and Price also mention at their finding, that it is
harder for an organization to change its archetype than to go from unhealthy to healthy within its
archetype (2011:71). It means that easier for PT. Bio Farma to be a sustainable excellence company by
doing the leadership driven archetype rather than have to move to the other archetypes.
b. Root Cause
As discussed before, to be a sustainable excellence organization, PT. Bio Farma needs to achieve
well in their performance and health. To make limitation in this research, PT. Bio Farma is assumed
has a high performance due to its achievement score of State‐own Enterprise health level
assessment got “Health AAA” in 2011 and “Health AA” in 2012. Refers to this assumption, this
research discussion focus to health aspects of the organization.
Due to the OHI result where PT. Bio Farma has surpassed the requirement of healthy organization
but not excellence yet, then it needs to determine which archetype that should be chosen and done
well in the company. This archetype will be the health aspiration to be focused in order enable
people reach the performance aspiration of the organization.
As a healthy organization, PT. Bio Farma does not have to change their business strategy, so that it
does not need to make a transformational change. The needs of PT. Bio Farma is choosing the
archetype to be focused and applied well in the company in order to become excellence and achieve
their vision.

3. Business Solution

F. Alternative of Business Solution
Refers to the archetypes model, leadership driven has the biggest result of aspiration in PT. Bio
Farma. This archetype is recommended to be applied due to its domination rather than the other
archetype – execution edge and knowledge core ‐ in the organization. As discussed at the previous
chapter, PT. Bio Farma would easier to become organization excellence by keeping on the line of
their strength at leadership driven archetype model. They do not need to make a transformational
change while still on their dominant archetype to develop.
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G. Analysis of Business Solution
To achieve the priority as same as the archetype model, there should be a target to be designed.
Comparing the target with OHI existing result, table 4 shows the gaps within it.

Table 4. Leadership Driven Gap

No. Leadership Driven Mean Target Gap
1 Career opportunities 3,43 4,25 0,82
2 Open & trusting 4,04 4,04 0,00
3 Performance contract 3,90 4,00 0,10
4 Inspirational leaders 3,69 3,90 0,21
5 Strategic clarity 3,48 3,85 0,37
People performance
6 3,47 4,00 0,53
review
Operational
7 3,76 3,76 0,00
management
Operationally
8 4,21 4,21 0,00
disciplined
Consultative
9 3,87 3,87 0,00
leadership
Consequence
10 3,29 4,00 0,71
management

Target is determined by considering the priority of the practices in its archetype. The target is used to
know the gap between existing situation and future condition recommended to PT. Bio Farma. At this
archetype, there are four practices that PT. Bio Farma has already achieve well compared with the
model, which are open and trusting, operationally disciplined and consultative leadership. Open and
trusting is at the second place as match as the archetype model. The other practice – operationally
disciplined – is at the first place, much higher than the archetype model. It is also happened to
consultative leadership and operational management which are at the fifth and sixth, higher than the
archetype model where placed at seventh and ninth. It means that there is no gap to be filled in this
archetype. PT. Bio Farma needs to keep maintaining these four practices.

On the other side, performance contract is in PT. Bio Farma top practices but there is gap with the
priority of the archetype model. Its rank – fifth – are lower than the requirement – third, so this
practice also needs development to fill the rank gap. Five practices remain – career opportunities,
inspirational leaders, strategic clarity, people performance review and consequence management –
in the leadership driven model are laying in second quartile, not in the top practices of PT. Bio Farma.
So that, it needs more effort to fill the gaps because the company have to leverage it from second
quartile to the top quartile first.
Career Opportunities
The company needs to develop this practice and make it to be the highest priority. It is because
the highest priority of the leaders in this archetype is to build a pipeline of future leader by creating
career opportunities. This archetype guide people in the company to be a leader where the
leadership is learned by doing. PT. Bio Farma should providing career and development opportunities
in order to motivate employee.
The career path programs recommended are:
1. Individual Career Path
2. Internal Movement Program
3. Job Tender Program
The development career program recommended are:
1. Management Trainee (MT)
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2. Management Development Program (MDP)
Performance Contract
The following are the strategy to develop performance contract (Jim Jose Associate, 2003):
1. Start with performance expectations ‐ goals.
2. Include milestones.
3. Schedule accountabilities sessions.
At the end of the evaluation period, individuals and groups are evaluated based on how closely the
actual performance met the performance contract.
Inspirational Leadership
The inspirational leader program will help leaders build the leadership skills they need to inspire
and motivate their teams to greater success. To develop the inspirational leaders, the management
has to understanding what qualities that are necessary. Training and development program are
necessary to create inspirational leaders continuously.

Strategic Clarity
PT. Bio Farma should ensure five steps of strategy management process (Batemen and Zeithaml,
1990:185) – internal assessment, environmental analysis, strategy formulation, strategic control –
are running well to achieve the strategic clarity target. The most important step is how to implement
and control the strategy, because no matter how great the strategy plan it means nothing if it does
not implement and control well.
The managers should create strategy map to describe the strategies formula to be shared to their
people. An integrated system connected to all divisions can be used for sharing all the strategies
information (e.g., goals, targets) to all employees. The strategies are accessible to all parties of the
company with some privilege based on job position. The monitoring step is also done in this system,
where the managers should report all the strategies progress through the system.

People Performance Review
As part of performance management system, this practice are strongly related to performance
contract practice. The deficiency in recent appraisal system can be enhanced by using the result
approach. The result approach focuses on managing the objective, measurable results of a job of
work group.
The subjectivity can be minimized from the measurement process, relying on objective,
quantifiable indicators of performance where the result are the closest indicator of one’s
contribution to organizational effectiveness.
Through this practice, PT. Bio Farma should has:
1. People performance assessment program
2. People performance review
3. Individual appraisal
Consequence Management
Consequence management program is linking rewards and punishment to individual
performance. Consequence management practice is divided into positive consequence (rewards,
incentive and recognition) and negative consequence (punishment). An appropriate consequence is
when the employees achieve their performance contract, the company praise, encourage, recognize
and reward them. On the other hand, when they are not doing what they committed in performance
contract, the company gives them negative consequence and engages them in a conversation to
understand why progress has not been made.
PT. Bio Farma has to ensure the rewards and punishments are given as the objective
consequences of individual performance. It is the essential of consequence management practice.

Expert Judgement
To validate the business solution recommendation, author conducted interview and discussion to
managers from Human Resources division and several senior managers in PT. Bio Farma.

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4. Conclusion and Implementation Plan
H. Conclusion
There are several points to be concluded in this thesis research:
PT. Bio Farma is measured as a healthy organization based on Organization Health Index (OHI)
model.
The highest score of management practices PT. Bio Farma is operationally discipline and the
lowest is employee involvement.
PT. Bio Farma has 13 management top practices recognized as the strength spread into 3
archetypes model – leadership driven, execution edge, knowledge core – where the dominant is
leadership driven.
PT. Bio Farma should apply and done well the leadership driven archetype to be a sustainable
excellence organization in the future.
There are six management practices in PT. Bio Farma that need development and four practices
need to keep maintaining. The six management practices need development are:
1. Career opportunities
2. Performance contract
3. Inspirational leaders
4. Strategic clarity
5. People performance review
6. Consequence management
PT. Bio Farma has validated the result and agreed to consider implement the business solution
recommended.
PT. Bio Farma should conduct the OHI survey again after one year implementation of the
program. It purposes to evaluate and measure the program effectiveness.
I. Implementation plan
After validated the business solution recommendation, the implementation plan of the programs
are showed at table below:

Table 5. Implementation Plan

Leadership Program to
No PIC Time
driven develop
Career path
1. Individual
career path Oct
TM
2. Internal 2013
Career
movement
1 opportunitie
3. Job tender
s
Development
Management Sept
KM
Development 2013
Program (MDP)
Performanc Performance Oct
2 PM
e contract contract 2013
1. Assessment
program
People
2. Performance Oct
3 performanc PM
review 2013
e review
3. Performance
appraisal
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Leadership Program to
No PIC Time
driven develop
Consequenc
Consequence to
e Oct
4 individual PM
managemen 2013
performance
t
1. Training
Inspirational program Jan
5 KM
leaders 2. Development 2014
program
Implementing
CS,
Strategic Strategic Oct
6 OD,
clarity Management 2013
IT
Process

Person in Charge (PIC)
TM : Talent Management Department
PM : Performance Management Department
KM : Knowledge Management Department
OD : Organization Development Department
CS : Corporate Strategy Division
IT : Information Technology Department

Budgeting
Budgeting is needed for proposing the programs budget that have not allocated in 2013. Career path,
performance contract, people performance review and consequence management already have
allocated the budget in 2013. These programs are planned to be finished at September and will be
implemented at October 2013. The other programs – MDP, inspirational leaders and strategic clarity
– have not allocated the budget in 2013, so that these program need to set budgeting to be proposed
in 2014.
Socialization
Socialization is necessary for all program proposed. It needs to be understood well to all people in
entire company to meet the objectives of the programs. The PICs of the programs have minimum
duration one month before implementation to ensure the socialization is received and understand
well to all division of PT. Bio Farma.

Evaluation
Evaluation is the important part of the implementation plan. The evaluation is done by conducting
OHI survey at the end of 2014. This survey will measure the effectiveness of the programs and how
close the programs’ effectiveness to meet the target to be a sustainable excellence organization.

References

Annual Report PT. Bio Farma (Persero), 2011.
Bateman, T.S., Zeithaml, C.P., 1990, Management Function and Strategy, Boston, USA: Richard D.
Irwin, Inc.
Cascio, W.F., 2003, Managing Human Resources, New York, USA: McGraw‐Hill/Irwin.
http://www.biofarma.co.id/index.php/home.html
James, G, 2012, 7 Traits of Truly Inspiring Leaders, July 9th 2012. Quoted on April 4th 2013
from http://www.inc.com/geoffrey‐james/6‐traits‐of‐truly‐inspiring‐leaders.html
Jim Jose Associate, 2003, Managing Employee Performance through Performance Contract,
January 13th 2003. Quoted on March 18th 2013 from
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http://www.jimjoseassociates.com/newsletter/SS01132003.html
Keller, S., and Price, C., 2011, Beyond Performance, New Jersey, USA: John Wiley & Sons, Inc.
Keputusan Menteri Badan Usaha Milik Negara Nomor: KEP‐100/MBU/2002 tentang Penilaian Tingkat
Kesehatan BUMN.
LRN corporation, 2010, Inspirational leadership.
Noe, R.A., Hollenbeck, J.R., Gerhart, B., Wright, P.M., 2010, Human Resource Management, New
York, USA: McGraw‐Hill/Irwin.
Palmer, I., Dunford, R., and Akin, G., 2009, Managing Organizational Change: A Multiple Perspectives
Approach, New York, USA: McGraw‐Hill/Irwin.

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